J.P. Morgan:
The Bank of England is stuck between a rock and a hard place, with inflationary pressures mounting alongside a weak growth outlook. While it may have been tempting for the Bank to cut rates today, ultimately the decision to hold was appropriate.
Inflation and wage growth remain sticky and inflation dynamics do not look favourable in the near term as employer tax hikes, price resets and a minimum wage increase all come into effect in April. Some business surveys are sending a weak signal on the employment side, but this morning's data suggests that the labour market is still holding up. The Bank would be taking a risk to assume that softer surveys will feed through to the hard data and should therefore remain laser-focused on the inflation threat.
UBS:
The Bank of England's decision to hold rates steady, with a vote split of 8-1, was a slightly more hawkish vote split than many assumed, but no change to rates is in line with expectations.
As noted in the minutes, policy uncertainty remains high, with a particular nod given to 'global trade policy uncertainty'. Although news flow on the domestic economy hasn't provided much new news for policymakers, next week's Spring Statement is likely to see the Chancellor announce spending cuts, which may weigh on the economy.
Unlike Germany, where the dramatic shift in fiscal policy has brightened the economic outlook, the UK has limited capacity to increase spending without abandoning its self-imposed fiscal rules.
TD Securities:
The Bank of England's 8-1 vote to keep interest rates unchanged gives sterling a modest lift but the currency remains largely driven by external factors. The fact that just one policymaker voted in favor of a rate cut is helping sterling at the margin but this is nothing too big or surprising. Sterling moves have been largely driven by global macroeconomic events recently. Optimism over German and EU fiscal stimulus and worries about U.S. growth have weakened the dollar. However, sterling could suffer a pullback versus the dollar as the April 2 U.S. reciprocal tariff deadline approaches.
ING:
It is clear the committee is becoming more nervous about this year’s rise in headline inflation. It has already hit 3%, and we think it will briefly get close to 4% in the second half of the year. On paper, this shouldn’t be a concern, given that it overwhelmingly reflects rising utility bills. But it’s clear the Bank is still scarred by the experience of 2-3 years ago, where rising natural gas prices fed through to higher service-sector inflation much more aggressively than it had first thought.
In short, barring a surprise collapse in the jobs market or an equally surprising energy-driven pickup in services inflation, we think the Bank is poised to continue making quarterly rate cuts throughout 2025. Financial markets are a little more sceptical, pricing just 53bp of further easing over 2025 and virtually nothing more in 2026. Not only do we expect 75bp worth of rate cuts this year, we expect another 50bp in total next year.
Rabobank:
Our baseline scenario has not changed since last summer: the Bank of England will likely cut rates quarterly, focusing on meetings with a Monetary Policy Report, aiming to end 2025 with a policy rate of 3.75%. Simply put: we expect the policy rate to follow underlying services and wage inflation lower, keeping real rates positive. Such a gradual approach also provides time to address issues such as inflation persistence, the impact of the increase in National Insurance Contributions, the Trump tariffs and potential retaliation, and new external shocks. Moreover, we believe that a nominal rate of 3.75% remains restrictive and is not conducive to boosting demand and inflation
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